HVAC equipment maker Lennox International Inc. (LII) has announced its unaudited results for the first and second quarters of 2004.
In the first quarter revenue from continuing operations was U.S. $664 million. The company reported a first-quarter net loss of $195 million, or $3.27 per share, reflecting a $208 million pre-tax, or $185 million after-tax, goodwill impairment charge related to Service Experts, and a $20 million pre-tax charge, or $16 million after-tax, related to the disposal of Service Experts' discontinued operations. First quarter income from continuing operations before goodwill impairment was $7 million, or $0.11 per share.
In the second quarter, LII reported revenue of $805 million and income from continuing operations of $36 million, or $0.58 per share. Discontinued operations negatively impacted earnings by $4 million pre-tax, or $2 million after-tax, resulting in second quarter earnings per share of $0.54.
LII said it continues to lower its debt, with total debt at the end of the second quarter $73 million lower than the year-ago level. Total debt as of March 31, 2004 was $365 million and was reduced to $317 million as of June 30, 2004.
"We had a solid start to 2004, with revenue accelerating in the first half of the year, our manufacturing facilities operating efficiently, and performance improving at our international operations," said Bob Schjerven, CEO. "As we look ahead, we expect North American commercial market demand and our offshore operating performance will continue to improve at a moderate pace for the rest of the year, but based on weather patterns already experienced in the third quarter, our expectations for the residential market are considerably more conservative.
"Balancing our strong first-half performance with this somewhat mixed outlook for demand, the projected impact of higher material costs in the second half of the year, and higher corporate expenses, including Sarbanes-Oxley compliance costs, we expect a full-year loss per share on continuing operations of $1.53 to $1.63, including the goodwill impairment charge taken in the first quarter," Mr. Schjerven added. "Excluding this charge, we anticipate full-year earnings per share from continuing operations will be at the lower end of the $1.38 to $1.48 range previously provided."
The company said it also expects continued strength in cash flow generation, with cash flow from continuing operations less capital expenditures exceeding $75 million.
Business Segment Highlights
Heating & Cooling: LII's Heating & Cooling business had revenue of $433 million in the first quarter and $552 million in the second quarter. Segment profit was $34 million or 7.8 percent of sales in the first quarter, and $72 million, or 13.0 percent of sales in the second quarter. Higher volumes and improved efficiency in manufacturing operations offset increases in raw material costs, the company said.
Residential Heating & Cooling reported sales of $324 million and $401 million in the first and second quarters, respectively. Segment profit was $33 million in the first quarter, equating to a 10.1 percent margin. In second quarter, segment profit of $55 million translated to a margin of 13.8 percent.
Commercial Heating & Cooling had revenues of $109 million and $151 million for the first and second quarters, respectively. Segment profit was $1 million in the first quarter and $17 million in the second quarter, resulting in segment profit margins of 1.3 percent and 11.1 percent, respectively.
Revenue from the 130 dealer service centers that make up LII's continuing Service Experts business segment was $139 million in the first quarter and $168 million in the second quarter. The segment had an operating loss of $8 million or 5.5 percent of sales in the first quarter, but in the second quarter moved to a segment profit of $6 million, or 3.3 percent of sales. Implementation costs for the STARS IT system in Canada, which is on schedule to be completed by the end of this year, and higher marketing expenses put downward pressure on margins, LII said. In addition, the company said Service Experts has moved aggressively on the previously announced Service Experts turnaround plan. As of this date, 18 of the 47 centers identified for divestiture have been sold and, as planned, the company continues to project that the remaining centers will be divested by the end of 2004.
LII's Refrigeration segment had revenues of $109 million in the first quarter and $108 million in second quarter, with solid top-line performance in all regions, the company said. Segment profit was $10 million for both the first and second quarters, with operating margins of 9.0 percent and 9.4 percent, respectively.
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